UK Dividend Tax Guide 2026/27
Dividends are payments made by companies to shareholders from their profits. In the UK, dividends are taxed at special rates that are lower than Income Tax rates, making them a tax-efficient way to extract profits from a company.
Dividend Tax Rates 2026/27
| Tax Band | Dividend Tax Rate | Income Threshold |
|---|---|---|
| Dividend Allowance | 0% | First £500 |
| Basic Rate | 8.75% | £12,571 - £50,270 |
| Higher Rate | 33.75% | £50,271 - £125,140 |
| Additional Rate | 39.35% | Over £125,140 |
Dividend Allowance
The first £500 of dividend income is tax-free, regardless of your tax band. This is called the Dividend Allowance.
Note: The Dividend Allowance has reduced significantly:
- 2022/23: £2,000
- 2023/24: £1,000
- 2024/25 onwards: £500
How Dividend Tax is Calculated
Dividends sit on top of your other income when calculating tax:
Example: £50,000 salary + £10,000 dividends
- Salary uses bands first: £50,000 (within basic rate)
- Dividends then fill remaining bands:
- First £500: Tax-free (allowance)
- Next £270: Basic rate (£50,000 + £270 = £50,270)
- Remaining £9,230: Higher rate
Dividend tax calculation:
- £500 × 0% = £0
- £270 × 8.75% = £23.63
- £9,230 × 33.75% = £3,115.13
- Total dividend tax: £3,138.76
Dividends vs Salary for Directors
For company directors, the key question is whether to extract profits as salary or dividends:
| £50,000 Extraction | Salary | Dividends |
|---|---|---|
| Corporation Tax (25%) | Saved (allowable expense) | Paid first |
| Income Tax | 20-40% | 8.75-33.75% |
| Employee NI | 8% | None |
| Employer NI | 13.8% | None |
Generally, dividends are more tax-efficient for amounts above the tax-efficient salary level (£12,570).
Reporting Dividends to HMRC
Under £500 Total Dividends
No action needed if all dividends are within the allowance.
£500 - £10,000 Total Dividends
HMRC may adjust your tax code, or you can declare via Self Assessment.
Over £10,000 Total Dividends
You must register for Self Assessment and file a tax return.
Dividend Tax Planning Tips
1. Use Your Allowance
Ensure you receive at least £500 in dividends to use your allowance.
2. Spouse Shareholding
If your spouse is a basic rate taxpayer, consider joint shareholding to utilise their lower rates.
3. ISA Investments
Dividends from shares held in ISAs are completely tax-free.
4. Pension Contributions
High dividend income can be reduced by pension contributions, potentially lowering your dividend tax rate.
Frequently Asked Questions
Do I pay tax on dividends from my ISA?
No. Dividends within ISAs are completely tax-free and don't count towards your Dividend Allowance.
What about dividends from overseas companies?
Foreign dividends are taxed the same as UK dividends. You may get credit for any foreign tax withheld.
My company hasn't made a profit. Can I still take dividends?
No. Dividends can only be paid from distributable profits (accumulated profits after tax). Paying illegal dividends has serious consequences.
How do I declare dividends on my tax return?
Enter dividend income in the "UK dividends" section of your Self Assessment return. You'll need dividend vouchers from your company.
Related Calculators
- Dividend Tax Calculator - Calculate your dividend tax
- Salary vs Dividend Calculator - Compare extraction methods
- Corporation Tax Calculator - Calculate company tax